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How Does the Social Security Family Maximum Work?

A reader writes in, asking:

“My wife and I have each been high earners throughout our careers. I recently read a Forbes article that mentioned a Social Security Family Maximum Benefit. I had never heard of such a thing before. If my wife and I each have high enough career earnings, would the Family Maximum be a reason for us to claim early? Or would it potentially kick in even if we do claim early, if our earnings are high enough?”

“No,” to both questions. The family maximum is not something that gets in the way of waiting to file for Social Security benefits. Nor is it something that gets in the way of two high earners having high benefits.

Rather, the family maximum is a rule that becomes relevant when there are at least two other people (i.e., a spouse as well as a minor child, adult disabled child, or dependent parent) who are drawing benefits on the work record of one person.

Specifically, the family maximum on a given person’s work record ranges from 150% to 187% of the person’s primary insurance amount. (Your primary insurance amount is your monthly retirement benefit if claimed at full retirement age.) For the family of a worker who turns 62 (or dies prior to age 62) in 2018, the family maximum on their work record would be calculated as:

Example: Fred and Nancy have an adult disabled child, Sarah. Nancy’s work record is insufficient to qualify for a Social Security retirement benefit of her own, because she has spent so much of her time caring for Sarah. Fred’s PIA is such that the family maximum is calculated as 180% of his PIA.

Without considering the family maximum, Nancy would be able to receive a spousal benefit equal to 50% of Fred’s PIA (assuming she waits until her full retirement age to file for such benefit), and Sarah would be able to receive a child’s benefit equal to 50% of Fred’s PIA. However, because of the family maximum, Nancy and Sarah’s total benefit will be limited to 80% of Fred’s PIA (i.e., 180% of his PIA, minus the 100% that Fred gets himself).

How the Family Maximum Reduces Benefits

The family maximum rule will never reduce the benefit of a worker on his/her own work record. Rather, it will only reduce the amount that other people can receive on the worker’s work record. (And it reduces those other people’s benefits proportionately until the total amount the family is receiving on the worker’s record does not exceed the calculated maximum.)

Also, when calculating the amount of benefit that the rest of the family can receive, the worker’s own benefit is assumed to be 100% of their PIA, regardless of whether they actually filed before or after full retirement age. For example, if the family maximum calculated on your PIA is 170% of your PIA, that means that the maximum for the rest of your family (on your work record) would be 70% of your PIA, even if your own benefit is more or less than 100% of your PIA due to filing early or late.

Example (continued from above): The family maximum calculated based on Fred’s PIA is 180% of his PIA, which means that the rest of Fred’s family can receive 80% of his PIA. As a result, rather than each receiving a benefit equal to 50% of Fred’s PIA, Nancy and Sarah will each receive a benefit equal to 40% of Fred’s PIA.

What if Nancy did have enough work history to qualify for a retirement benefit of her own? In that case, her retirement benefit amount would not count toward the family max on Fred’s record.

Example: Nancy has a retirement benefit equal to 30% of Fred’s PIA. Before considering the family max, she should be able to also get a spousal benefit equal to 20% of Fred’s PIA (i.e., enough of a spousal benefit to bring her total benefit up to half of his PIA, just like normal). Now, with Nancy getting a spousal benefit equal to 20% of Fred’s PIA and Sarah getting a child’s benefit equal to 50% of Fred’s PIA, the family maximum of 180% of his PIA is not exceeded, so the family maximum rule has no effect at all.

Social Security Family Maximum and Ex-Spouses

A final important point about the family maximum is that an ex-spouse drawing a benefit on your work record does not count toward your family maximum benefit (i.e., the ex-spouse drawing a benefit will not reduce the benefit of anybody in your current family). And, in turn, the family maximum rule cannot reduce the benefit of an ex-spouse.

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